A Young Family's Gap: $1M of Term on the Higher Earner
Marcus, 34, and Priya, 32, have two children (ages 6 and 3) and combined income of $148,000 - Marcus earns $96,000 as a project engineer, Priya $52,000 as a part-time nurse. Their mortgage balance is $382,000 with 27 years remaining, they carry $14,000 of credit-card debt, and their emergency fund is $22,000. Marcus's employer provides group term life at 1× salary capped at $50,000; Priya's job offers no life benefit. Priya's employer health plan covers the family. Neither has individual life coverage, and the only beneficiary designation on record is Marcus's group certificate naming Priya. Their goals: retire the mortgage and fund four years of in-state tuition (currently $26,000 per year) for each child if either parent dies. Priya also wants coverage that cannot be cancelled if her health changes - she has well-controlled Type 1 diabetes (A1c 7.2, no complications). Their budget supports about $300 per month. The agent has proposed $1,000,000 of 30-year term on Marcus and $500,000 of term on Priya.
1. Using a capital needs (DIME) analysis, estimate the gap for each spouse and judge whether the proposed face amounts are adequate.
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Build the need from components, not a rule of thumb.
Marcus:
- Debt and mortgage: $382,000 + $14,000 = $396,000
- Education: $26,000 × 4 years × 2 children = $208,000 (in today's dollars; tuition inflation and discounting roughly offset over 15 years)
- Income replacement: $96,000 × 10 years = $960,000, or 70% × 15 years ≈ $1,008,000 - whichever method is chosen, disclose it
- Gross need: roughly $1.56–1.60 million
- Resources: $50,000 group term (employment-tied); the $22,000 emergency fund should generally stay earmarked for the family, not counted
- Gap: about $1.5 million. A $1,000,000 face amount leaves a $450,000–500,000 shortfall.
Priya:
- Her income $52,000 × 10 = $520,000, plus replacement cost of childcare and household services (roughly $25,000/year for 12 years ≈ $300,000), plus the same $208,000 education obligation = about $1.03 million
- Gap: about $1.0 million. $500,000 covers roughly half.
The proposal is underfunded on both lives. At $300/month the couple cannot fully fund both, so prioritize: $1.5 million on Marcus laddered as $1,000,000 of 30-year term plus $500,000 of 20-year term (the mortgage and child-rearing need declines), and the largest convertible term on Priya the budget allows, with a written plan to increase as income rises. Deliver the analysis in writing and review it at each birth, mortgage change, and job change.
2. Priya insists on coverage that 'cannot be cancelled.' Explain what products can and cannot deliver that, and how her diabetes affects underwriting and the recommendation.
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What 'non-cancellable' means in life insurance.
Level term is typically guaranteed renewable for its term - the insurer cannot cancel, but the premium steps up sharply at renewal and the contract expires (often at 65, 80, or 95). That is a temporary solution with an expiry date, not lifetime protection. Only permanent contracts - whole life, guaranteed universal life, or UL with a no-lapse guarantee - deliver a level premium for life that the insurer cannot cancel, and even then only if the planned premium is actually paid.
Underwriting. An A1c of 7.2 with no complications is usually insurable, but not at preferred rates: expect a table rating (commonly Table 2–4, i.e. roughly +50% to +100% mortality) or a flat extra, with some carriers declining and others offering standard-plus because control is documented. Submit an informal inquiry to several carriers, supply recent A1c results and the endocrinologist's notes, and compare the actual offers rather than assuming.
The structural answer. Buy convertible term now. The conversion privilege locks in her current insurability - she can exchange to permanent coverage later without evidence of insurability, at either original or attained-age rates depending on the contract. Convert in slices as the budget grows (after the mortgage is paid down or Marcus's income rises), and calendar the conversion deadline. If any need is genuinely permanent - estate liquidity, a lifelong dependent - place a small whole life base now and layer convertible term on top, because a health change after issue can permanently close the door.
3. Identify at least three non-product problems in the current arrangement and how to fix each.
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1. No coverage on Priya at all. The plan fails if the lower earner dies first, yet she supplies childcare with a real replacement cost. Fix: place convertible term on her now, before any health change.
2. No contingent beneficiary. The group certificate names only Priya. If she predeceases Marcus, the $50,000 passes to his estate - probate, delay, and creditor exposure. Fix: add primary and contingent beneficiaries on every policy, and name a trust or UTMA custodian for the children's share, since a minor cannot receive or manage proceeds directly and a court-supervised guardianship of the funds is otherwise required.
3. The $50,000 is employment-tied and capped. Coverage ends when Marcus leaves the employer, usually with only a 31-day conversion window, and 1× salary capped at $50,000 is not a program. Fix: treat group term as a supplement only, verify the portability/conversion rules, and place the individual policies so the family's protection does not depend on a job.
4. No disability analysis. During the working years the probability of a long disability rivals or exceeds that of death, and nothing in the file addresses income replacement. Fix: review both group LTD plans - definition of disability, offsets, benefit cap, taxation of benefits - and supplement as needed.
5. Undocumented advice. Fix: deliver the needs analysis, note the assumptions and the alternatives rejected, and schedule an annual review. This also protects the producer if a claim or complaint later questions the recommendation.